A significant pre-budget tremor hit the City of London on Friday, as a massive sell-off in banking stocks signalled deep anxiety about the government’s intentions. The £6.4 billion rout, sparked by a windfall tax proposal, serves as a powerful warning of potential market chaos if the autumn budget is seen as hostile to the financial sector.
The source of the tremor was the IPPR’s suggestion that banks should be taxed to cover the £22 billion annual cost of the quantitative easing (QE) program. This idea has tapped into the City’s worst fears: that a government facing a £40 billion deficit will resort to raiding the country’s most profitable industry.
The anxiety was palpable on the trading floor, leading to a steep decline in the share prices of all major lenders, including NatWest and Lloyds. This was not a minor fluctuation but a significant market event, a clear signal of distress from the heart of the UK economy.
This pre-budget warning is one the chancellor can ill afford to ignore. It demonstrates that the confidence of the financial markets is fragile. Any move in the budget that is perceived as an attack on the banking sector could trigger a much larger and more damaging earthquake, with consequences for the entire economy.